Week in Review November 24, 2017

Investors pushed equity indexes to new records last week.

Both the Dow and the S&P 500 rose 0.9% during the Thanksgiving-shortened week, with the latter index closing above 2600 for the first time. The Dow hit its all-time closing high on Tuesday. NASDAQ also ended the week at an all-time high after gaining 1.6%. The small-cap Russell 2000 rose 1.8%, its best gain since the end of September. Oil prices continued to surge, climbing another 4% to end the week just shy of $59 a barrel, their highest level since August 2015 and up more than 32% since a recent low of less than $44 back in mid-June. Bond prices were little changed.

Outside the U.S., Japanese stocks got back on the winning track after falling the previous week for the first time in 10 weeks. The Nikkei 225 gained 0.7%. Hong Kong’s Hang Seng index jumped 2.3%; the index is up more than 35% so far this year and is one of the best performers among the world’s major indexes in 2017. On Tuesday the index moved past 30000 for the first time in 10 years although it ended the week slightly below that mark. European stocks also rebounded slightly following some recent losses. The Stoxx Europe 600 gained 0.7% after falling more than 1% in each of the previous two weeks while Germany’s DAX index rose 0.5% after losing more than 3.5% over the prior two weeks. The Ifo Institute’s German business climate index rose to a record 117.5, while a purchasing managers index for the euro zone hit a 6 ½ year high.

Janet Yellen said she would resign from the Federal Reserve’s board of governors when her replacement as Fed chair, Jerome Powell, is confirmed by Congress and is sworn in. Although her term as a board member doesn’t expire until 2024, Fed chairs traditionally resign from the Fed when they’re no longer the top person. “We expect [inflation] to move back up over the next year or two, but I will say I’m very uncertain about this,” she said at New York University’s Stern School of Business. “My colleagues and I are not certain that it is transitory, and we are monitoring inflation very closely. It may be that there is something more endemic or long-lasting here that we need to pay attention to.” But the minutes of the Fed’s October 31-November 1 monetary policy indicated that the Fed will raise rates at its next meeting in mid-December despite inflation remaining below its 2% target. “Many participants thought that another increase in the target range for the federal funds rate was likely to be warranted in the near term if incoming information left the medium-term outlook broadly unchanged,” the minutes said.

Reports on the U.S. economy were a bit mixed last week. On the plus side, the Conference Board’s index of leading economic indicators rose a better-than-expected 1.2% in October and well ahead of the prior month’s upwardly revised 0.1% gain, largely the result from the bounce-back from the summer hurricanes. Likewise, the Chicago Fed’s national activity index rose to a stronger-than-expected reading of 0.65. But durable goods orders fell an unexpected 1.2% last month after climbing 2.2% in September. The decline was skewed by the volatile transportation sector, otherwise orders were up 0.4%. Still, core capital goods orders, a proxy for business investment, were down 0.5%. Sales of existing homes rose 2% to an annual rate of 5.48 million, the strongest pace since June, although they remained 0.9% below the sales level of a year earlier, the result of high prices and low inventories of homes for sale. The University of Michigan’s consumer sentiment index ended November at 98.5, down more than two points from the end of October although up slightly from the mid-month reading.

Reports/dates/facts/links worth paying attention to over the next week: